https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/285

**REPUBLIC OF KENYA** **IN THE TAX APPEALS TRIBUNAL AT NAIROBI** **TAX APPEAL NO. E1337 OF 2025** **MACTRUST LIMITED………………..…...………………………...…….….... APPELLANT** VS **COMMISSIONER OF CUSTOMS & BORDER CONTROL...………….....RESPONDENT** **JUDGMENT** BACKGROUND 1. The Appellant is a limited liability company which specializes in imports and trade in sugar. 2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws. 3. The Respondent carried out a post clearance audit on the importation of sugar by the Appellant for the year 2020 to 2024. The audit identified under declaration of customs values upon which a demand notice dated 19th February 2025 was issued to the taxpayer for short-levied duties amounting to Kshs. 2,996,586. 4. The Appellant objected to the demand notice on 16th July 2025. 5. Upon considering the objection, the Respondent issued the impugned review decision on 7th August 2025 where it extensively disallowed the objection application. 6. Dissatisfied with the Respondent’s findings, the Appellant filed the instant Appeal vide notice of appeal dated 19th September 2025 and filed on even date. **THE APPEAL** 1. The Appellant filed A memorandum of appeal dated 19th September 2025 and filed on the same date wherein it raised the following grounds of appeal: 2. That the Respondent erred in law and in fact in issuing a demand notice for short-levied duties. 3. That the demand notice by the Respondent was done in bad faith and in contravention of the respective provisions of the law. 4. That the Commissioner unjustifiably and capriciously departed from the Transaction Value Method as enshrined in law. 5. That the features and payment terms of a conventional tax invoice have been visibly indicated in the invoices availed. 6. That the arbitral use of the FOB value of Kshs 1000/MT is unjustified and inconsistent with the EACCMA and the WTO Valuation Agreement. 7. That the Commissioner failed in its duty of reasonableness by disregarding and failing to comprehensively examine the Appellant's records availed, in order to determine the correct tax position. 8. That the Respondent issued the impugned review decision without considering all the material facts provided by the Appellant. 9. That the Respondent has acted vindictively in exercising its judgment in disallowing the objection application done by the Appellant. **The Appellant’s Case** 1. In support of the appeal, the Appellant relied on its statement of facts dated 19th September 2025 and filed on the even date. 2. The Appellant’s case was that it received a notice of demand for short-levied duties dated 19th February 2025 for Kshs. 2,996,586. 3. The Appellant contended that the notice indicated that, pursuant to the provisions of Sections 234, 235 & 236 of the East African Community Customs Management Act **(EACCMA), 2004,** the Commissioner conducted a customs post-clearance compliance review on the Appellant’s importation of brown sugar originating from Uganda, Zambia and Malawi for the year 2022 to 2023. The audit sought to establish the accuracy of the values declared for the Appellant’s consignments of brown sugar. **Respondent’s demand notice and action were vindictive, bad in faith and ultra vires.** 1. The Appellant stated that the Tax Procedures Act (Section 28 to Section 31) provides various guidelines that the Commissioner/Respondent should consider when issuing an additional assessment, advance assessment, and/or default assessment. 2. The Appellant pointed out that the Respondent purportedly conducted a post-clearance audit as provided by the above provisions of the EACCMA. Without prejudice, the Appellant noted that the above provisions largely accord the Respondent/Appellant the respective guidelines that should be adhered to during the production of documentation/and inspection or audit. These sections do not kick-start an audit review process; they simply supplement the audit review process. 3. The Appellant stated that they were not fully engaged nor informed of an ongoing post-clearance audit process. They were only badgered by a demand notice demanding short levies, respectively. 4. The Appellant relied on Section (8) of the Tax Procedures Act which stipulates as follows: *“When the Commissioner has made an amended assessment, he or she shall notify the taxpayer in writing of the amended assessment and specify—* * 1. *the amount assessed as tax or the deficit or excess input tax carried forward, as the case may be;* 2. *any amount assessed as late payment penalty payable in respect of the tax assessed;* 3. *any amount of late payment interest payable in respect of the tax assessed;* 4. *the reporting period to which the assessment relates;* 5. *the due date for payment of any tax, penalty or interest being a date that is not less than thirty days from the date of the taxpayer received the notice; and* 6. *the manner of objecting to the assessment”* 1. The Appellant averred that the above requirements as stipulated in Section 31(8) of the Tax Procedures Act are couched in mandatory terms and, therefore the Commissioners/Respondent is required to adhere to these requirements in order to validate the assessments issued. The Respondent herein did not fully adhere to the strict requirements of Section 31 (8) when issuing the averred demand notice and the demands thereof. 2. It relied in the case of **Anne Wanjiku Kahwai & Another v Kenya Revenue Authority 2019 (EKLR)** & the case of **Sukari Investments Limited v Commissioner Domestic Taxes Appeal No. 81 of 2021**, where the honourable court affirmed that any notice for assessment/demand must strictly comply with the Tax Procedures Act and the general corpus of the country's laws in Kenya. 3. The Appellant submitted that Article 47 (1) of the Kenya Constitution provides that “(1) *Every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair.”* The actions of the respondent, from the issuance of the assessments to the extensive disallowing of the objection applications, have been unlawful, unreasonable and procedurally unfair. The High Court in the case of **Export Trading Company v Kenya Revenue Authority (2018) eKLR** noted that “*the importance of taxation and collection of taxes for any government cannot be gainsaid. It must however be noted that the process and the procedures leading to the collection of the said taxes must meet the relevant legal and constitutional thresholds in order to ensure the citizen's rights have not been violated. And or threatened with violation.”* 4. It pointed out that in the arena of taxation, the duty to give reasons for tax-related decisions made by the Kenya Revenue Authority is crucial if the Government of Kenya is to establish a public finance system that prioritises an equitable society where the tax burden is shared equally, as required by Article 201 of the Constitution. That by providing a detailed and reasoned decision as required by the Constitution and the law, a taxpayer is better equipped to challenge such a decision, whether through an appeal to the Tribunal. 5. That the case of **Joseph Muriithi Ndirangu t/a Ndirangu Hardware v Commissioner of Domestic Taxes (2023) KEHC 19357 (KLR)** and the case of **Local Productions Kenya Limited v Commissioner of Domestic Taxes (Tax Appeals Tribunal, Tax Appeal No. 50 of 2017)**, the courts have affirmed that the Commissioner/Respondent is obligated to issue a detailed and reasoned tax decision so as to ensure compliance with the inherent right of taxpayers to enjoy the right to fair administrative action that is expeditious, efficient, lawful, reasonable, and procedurally fair. **The transaction value method as enshrined in law.** 1. The Appellant stated that the Respondent’s departure from the Transaction Value Method (Primary method), as provided under the Fourth Schedule and Section 122 of the EACCMA, is ultra vires and indefensible. 2. The Appellant submitted that Section 122 of the East African Community Customs Management Act (EACCMA) governs the determination of the customs value of imported goods that are subject to ad valorem duty. The Appellant contended that the provision requires the customs value to be determined in accordance with the Fourth Schedule to the Act and grants an importer the right, upon request, to receive a written explanation of the basis upon which the customs value was determined. The Appellant further argued that the provision obligates the Respondent to adhere to the valuation methods prescribed under the Fourth Schedule and to provide transparency in the valuation process. 3. The Appellant also submitted that while the Respondent is empowered to verify the truth and accuracy of statements, documents, and declarations presented for customs valuation purposes, such power must be exercised within the framework of the Act and the Fourth Schedule. 4. According to the Appellant, Section 122 of the EACCMA further requires due regard to be given to the decisions, rulings, opinions, guidelines, and interpretations issued by the Directorate, the World Trade Organisation (WTO) and the Customs Cooperation Council when applying and interpreting customs valuation provisions. The Appellant therefore maintained that any customs valuation undertaken by the Respondent must be lawful, transparent, supported by the prescribed valuation principles, and consistent with internationally recognised customs valuation standards. 5. The Appellant stated that unless otherwise and as lawfully provided, the customs value of imported goods should always be the transaction value which is the actual price paid or payable. This method is the primary means of determining the customs value for the majority of imported goods worldwide. 6. It averred that the statement, "customs value of imported goods shall be the transaction value, which is the price actually paid or payable for the goods" is a fundamental principle of customs valuation, primarily based on the WTO Agreement on Customs Valuation. The transaction value represents the total payment made by the buyer to the seller for the imported goods when sold for export, adjusted for certain additions or deductions in accordance with specific rules. 7. The Appellant pointed out that the Fourth Schedule of the EACCMA explains the methods of determining the customs value of imported goods. The first method is the transaction value; the second method is the transaction value of identical goods; the third is the transaction value of similar goods; the Fourth method is the deductive value method; the fifth is the computed value method; and the sixth is the fall-back value method. 8. It further pointed out that the interpretative notes in Part II of the Fourth Schedule state that the methods above are to be applied in a sequential manner and that imported goods are to be valued in accordance with the provisions of the subsequent methods only where the conditions and parameters in the preceding method have not been fulfilled. Therefore, the first step towards the determination of the customs value of imported goods is the determination of its transaction value, which means the purchase price of the goods. 9. The Appellant noted that the Respondent arbitrarily disputed the transaction values declared by the Appellant on the basis that the invoices submitted lacked features of a genuine invoice, such as Incoterms; neither did they state the payment terms. 10. The Appellant argued that the basis given by the Respondent is evidently malicious, as the invoices availed bear the requisite features of a proper tax invoice. The invoice further averred the payment terms as appropriate. 11. It further argued that the basis accorded by the Responded is not even well-anchored in the law and as sequentially outlined in the Fourth Schedule of the EACCMA. 12. The Appellant averred that the Respondent did not even demonstrate appropriately as to this which valuation method, as envisaged under Schedule 4, that it used in the adjustment of the customs value is in issue. 13. The Appellant further averred that in the High Court Case of **Commissioner of Customs & Border Control** v **Bidco Oil Refineries Limited, Income Tax Appeal E011 Of 2021 (Being an appeal from the judgment of the Tax Appeals Tribunal dated** 18/12/2020), the court upheld the decision of the Tribunal and dismissed the appeal by the commissioner, taking note that, “*The customs value of the Respondent's goods should have been made using the price actually paid for the goods and not the price insured as the goods had been over insured by 10% as agreed between the seller and the appellant as per industry practice.*” The court also noted that the Appellant's adjustment of the customs value as declared by the Respondent was not in conformity with the provisions of Section 122 and the Fourth Schedule to the ECCMA, and that the statutory provisions governing customs valuation of imported goods were not properly applied by the Appellant in calculating the additional taxes and, as a result, the Appellant demand for the extra revenue amounting to Kshs. 1,377,505,299.00/- from the Respondent was not warranted. 14. The Appellant argued that the respondent erred in arbitrarily and maliciously departing from the Transaction Value Method without due regard to the provisions enshrined in Section 122 and the Fourth Schedule of the EACCMA. **Features and payment terms of a conventional tax invoice** 1. The Appellant stated that the respondent averred that the invoices availed by the appellant were irregular and lacked the basic features of an invoice, such as incoterms and payment terms. 2. It argued that, without and without prejudice, it is important to note that the invoices herein are not a creation of the appellant but of the appellant’s suppliers. The appellant has no control as to how the suppliers will design their invoices. 3. It further argued that an invoice conventionally includes your business’s name, contact details, the customer’s information, a unique invoice number, the date it was issued, a clear description of the goods orservices provided with quantities and unit prices, applicable taxes, the total amount due, payment terms, and a due date. These elements provide all the necessary information for both the seller and buyer to track the transaction, ensure accurate payment, and maintain clear financial records. 4. The Appellant averred that it had supplier invoices that bear all the requisite features of a conventional invoice, and this can be discerned from the invoices therein. 5. It stated that without prejudice, it took note that for customs endeavours it is imperative that the invoice has extra features such as harmonized system codes for the imported products and shipping terms (currency & Incoterms) so as to aid the customs authorities in assessing duties and taxes, ensuring accurate valuation and compliance with import regulations. 6. The Appellant documentation had details showing the respective payment terms and shipping terms (FOB & CIF) contrary to the allegations by the respondent. 7. It relied in the case of **High Star Food** **Industries limited** v **Commissioner** of **Investigations and** Enforcement Tax **Appeal No 305 of 2020,** where the Tribunal, in allowing the appeal by the appellant, reiterated that the Commissioner/Respondent must not be vindictive in applying the test. 8. The Appellant argued that the Respondent acted vindictively in averting that they could not discern these terms, yet they were readily available in the appellant’s documentation. **Arbitral use of FOB value** 1. The Appellant averred that the use of a constructed or reference FOB value of USD 1,000 per metric ton disregards the primary method of valuation, which is based on the price actually paid or payable for the imported goods. 2. It stated that the transaction value is the internationally recognized primary method, and its use ensures that the declared value accurately reflects the actual commercial reality of the sale. 3. The Appellant argued that the Respondent applied a fixed FOB value of USD 1,000 per metric ton over a three-year period from 2021 to 2024, without regard to actual transaction values, market conditions, or documented supplier agreements. This approach lacks both factual support and legal justification. It is inconsistent with the requirements of the EACCMA and the WTO Valuation Agreement, which mandate the use of the actual transaction value unless it can be proven to be unreliable or inaccurate. 4. The Appellant further argued that the Respondent did not provide any comparative import data, price lists, of transactional evidence to support the rejection of the declared transaction value under Method 1. In the absence of such comparative analysis, the rejection lacks procedural and substantive merit. The customs authority bears the burden of proving that the declared value is unacceptable, which has not been fulfilled in this case. **Examining the Appellant’s records availed so as to determine the correct tax position** 1. The Appellant averred that all the relevant and requisite documentation were provided to the Respondent. These documentations include supplier tax invoices, proforma invoices, payment confirmations, and correspondence with the suppliers, clearly indicating the actual amount paid or payable for the goods. 2. The Appellant argued that the Commissioner failed in its duties of reasonableness by disregarding and failing to fully examine the records that had been provided for review by the Appellant during the objection review process. 3. It stated that the Respondent issued an impugned objection decision without considering all the material facts and evidence that had been provided by the Appellant. The objection decision dated 7th August 2025 does not exhaustively address the issues and documentary evidence that had been adduced by the Appellant. 4. It relied in the case of **Republic v Public Procurement Administrative Review Board & 2 others Ex parte Pelt Security Services Limited (2018) eKLR**, where the court noted that *“Reaching at a decision on the basis of irrelevant considerations, or by disregarding relevant considerations, is one of the manifestations of irrationality... it is a reviewable error either to take into account of irrelevant considerations or to ignore relevant ones, provided that if the matter has been considered or the irrelevant one is ignored, a different decision or rule might (but not necessarily) have been made. Many errors of law and fact involve ignoring relevant matters or taking into account of irrelevant ones, ignoring relevant considerations of taking into account of irrelevant ones may make a decision or rule unreasonable”.* **Amount demanded is primarily incorrect.** 1. The Appellant pointed out that the Respondent averred that the Respondent has the burden of defending that a tax decision issued by the Commissioner is incorrect; this is provided for in Section 56 (1) of the Tax Procedures Act. The Appellant extensively agrees with this provision and provided corroborative and sufficient evidence to show that the Commissioner’s decision is incorrect. 2. It argued that this provision does not give the Respondent/Commissioner the leeway to issue an assessment in brazen breach of the fundamental principles of taxation. The Case of **High Star Food** **Industries Limited v Commissioner** of **Investigations and Enforcement, Tax Appeal No 305 of 2020,** the tribunal affirmed that the law does not accord the Commissioner the license to raise an assessment in total disregard of the fundamental principles of taxation espoused in Section 122 and fourth schedule to the EACCMA. 3. The Appellant contended that the Respondent’s action in elevating the Customs Value of its imported goods without basis or justifiable reason is arbitrary, capricious, unreasonable, unfair, and contrary to the administration of justice and the legitimate expectations of a taxpayer. The Appellant placed reliance on the case of **Republic vs Kenya Revenue Authority (Exparte J. Mohamed) Civil Application 312 of 2011,** where the court stated that: *“whereas this Court is not entitled to question the merits of the decision of taxing authority, that authority must exercise its powers fairly and there ought to be a basis for the exercise of such powers. A taxing authority is not entitled to pluck a figure from the air and impose it upon a taxpayer without some rational basis for arriving at that figure and not another figure. Such action would be arbitrary, capricious and in bad faith, it would be an unreasonable exercise of power and discretion and that would justify the Court in intervening.”* 4. The Appellant further cited the case of **Silver Chain Limited v Respondent Income Tax & 3 others [2016] eKLR**, where Justice S.J Chitembwe stated thus: *“The task of collecting taxes should not lead lo discouraging taxpayers from carrying on with their businesses. If the taxpayers’ close shop, there will be no taxes to be collected. On the other hand, if no taxes are paid, there will be no funds to run government operations. This calls for a balance between the tax collectors and taxpayers whereby the process becomes inclusive as opposed to being unilateral. There must be fairness in the process of lax assessment”* **Appellant’s Prayers** 1. The Appellant prayed as follows: 2. That the Respondent be and is hereby compelled to vacate/set aside demand notice issued. 3. That the Respondent set aside the demand of the taxes thereof. 4. That the Respondent be compelled to revise any penalties and interests payable and, 5. That the cost of this Appeal is borne by the Respondent **THE RESPONDENT’S CASE** 1. In response to the Appeal, the Respondent lodged a Statement of facts dated 6th November 2025 and filed on the even date and written submissions dated 20th April 2026 and filed on the even date. 2. The Respondent averred that section 235 reads in part: *” The proper officer may, within five years of the date of importation, exportation or transfer or manufacture of any goods, require the owner of the goods or any person who is in possession of any documents relating to the goods—* * 1. *Produce all books, records and documents relating in any way to the goods; and* 2. *to answer any question in relation to the goods;” Section 236 reads in part:* 'The Commissioner shall have the powers to- 1. *verify the accuracy of the entry of goods or documents through examination of books, records, computer stored information, business systems and all relevant Customs documents, commercial documents and other data related to the goods:* 2. *question any person involved directly or indirectly in the business, or any person in the possession of documents and data relevant to the goods or entry’* 3. The Respondent averred that it was well within the legal mandate and powers to audit and where unpaid taxes are established, to issue demands for recovery of the said taxes. 4. The Respondent averred that it acted in accordance with the applicable legal requirements and in good faith. The demand notice was issued after a thorough review of the facts and in compliance with all Section 122 of EACCMA. 5. It pointed out that the same Act also provides for the demand of short-levied duties under Section 135(1) which reads: *’Where any duty has been short levied or erroneously refunded, then the person who should have* paid theamount *short levied or to whom the refund has erroneously been made shall, on demand by the proper officer, pay the amount short levied or repay the amount erroneously refunded, as the Case maybe; and any such amount may be recovered as if it were duty to which the goods in relation to which the amount was short levied or erroneously refunded, as the case may be, were liable’* 1. The Respondent submitted that the valuation methodology under the EACCMA, 2004 and the WTO Valuation Agreement is hierarchical. One cannot arbitrarily select a later method without first excluding the earlier ones. The Respondent rightly found that the transaction value under paragraph 2 was unreliable and therefore moved to paragraph 3, the transaction value of identical goods. Identical goods were available and contemporaneously imported, making Method 2 the correct and lawful choice. 2. It pointed out that the invoices availed had different fonts; some items were italicised and bolded while others were not. 3. The Respondent lawfully conducted a desk audit under Sections 234, 235 and 236 of the EACCMA. 4. The Respondent averred that the audit revealed discrepancies between the Appellant's declared FOB values (Usd 615 to 710 per MT) and the average FOB values declared by importers of identical goods from the same countries of origin (Uganda: Usd 1000/MT and Zambia: Usd 850/MT). 5. The Respondent further averred that the transactions were not supported by commercial documents, the amounts remitted did not reconcile with the declared invoice values. Material variances were established between the declared invoices and remittances, undermining the reliability of the declared transaction values. The taxpayer was unable to provide evidence of proof of the price actually paid or payable. 6. The Respondent argued that Method 2 was applied in line with Paragraphs 2 and 9 of the Fourth Schedule to the EACCMA after rejecting the declared transaction value. 7. The Respondent pointed out that these findings established undervaluation within the meaning of Section 122 of the EACCMA, 2004 thereby resulting in underpayment of customs duty. 8. It argued that the determination of the underpayment was therefore both factually supported and legally sound. 9. The Respondent examined the documents presented, which were bank slips, pro forma, and commercial invoices: **Sugar Origination from Uganda.** 1. The Respondent stated that material variances were established between the declared invoices and remittances, undermining the reliability of the declared transaction values. 2. It pointed out that the bank slip reference 0374324 for example, dated 05/12/2022 being payment of sugar to Messugar corporation of Uganda Limited, with a value of Usd 25,488 did not relate to entry number 22BUSIM400311335 with consignor as Meyuge Sugar Industries and invoice value declared as Usd 21,900. 3. The Respondent averred that the decision to uphold the demand was not arbitrary but based on: verification of the declared customs values against transaction values of comparable imports during the same period; assessment of the completeness and authenticity of supporting documents provided by the Commissioner; and application of the appropriate customs valuation method under the WTO Valuation Agreement, as adopted under Part III of the EACCMA 2004. 4. The Respondent's Review Decision dated 7th August 2025 was issued after a comprehensive review of all the documents, explanations, and supporting evidence submitted by the appellant in accordance with Section 229 (1)— (4) of the East African Community Customs Management Act, 2004 (EACCMA 2004) 5. The Respondent argued that it exercised discretion lawfully and impartially, and that the resulting decision was based solely on the evidence available and the relevant legal provisions. The fact that the outcome did not favour the Appellant does not render the decision defective or "impugned” in law. 6. Upon receiving the Appellant’s objection, the Respondent carefully considered the submissions, evidence, and facts presented, including a review of whether the original valuation was correct, and whether the appellant’s objection raised any valid grounds for modification of the demanded amount, and issued the Respondent's Review Decision on 7th August 2025. 7. That the legal framework under which the Respondent’s Review Decision was issued is stipulated in Section 122 and the Fourth Schedule of EACCMA,2004. The Respondent's decision to disallow the objection was based on this framework, which does not leave room for arbitrary or biased decision-making. The Appellant's assertion of vindictiveness lacks merit and is contrary to the principles of fairness and due process that govern customs procedures. 8. The Respondent averred that the duty assessment was made in accordance with the customs valuation procedures outlined in Section 122 and the Fourth Schedule of EACCMA 2004, and relevant trade regulations. 9. The Respondent further averred that the amount demanded is the result of the correct application of customs duty based on the valuation of goods. The Respondent's Review Decision reaffirmed that the duties were correctly assessed under the law. Customs duties are a legal obligation of the Appellant and not arbitrary charges. The requirement to pay taxes, including duties, is an essential part of trade compliance and ensures that the integrity of the customs regime is maintained. 10. The Respondent stated that while the economic difficulties faced by the Appellant are acknowledged, they cannot override the legal obligations under customs law. Duty demands are not intended to be punitive: they are designed to ensure compliance with the laws governing trade and customs. The objective is to collect the correct amount of revenue for the state, not to penalize businesses. 11. In its submissions dated 20th April 2026 and filed on the same date, the Respondent rehashed the statement of facts and relied on the provisions of the Evidence Act, Section 107 which states as follows: “*107(1) Whoever desires any court to give judgement as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.* *(2) When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.”* 1. It submitted that in any Tax Court, the taxpayer must show that the Commissioner’s determination is incorrect. If he succeeds, then the Commissioner must go forward and prove the correct tax liability by a preponderance of the evidence. 2. The Respondent further submitted that this is frequently expressed as a presumption of the correctness of the Commissioner’s determination, with the taxpayer having the burden of proving it incorrect. If the taxpayer sustains this burden, then the burden of proving the correct amount of tax due shifts to the Commissioner. However, the initial burden on the taxpayer operates separately as to each item making the deficiency. 3. To buttress the point, the Respondent relied on the following cases: 4. **Leah Njeri Njiru v Commissioner of Investigations and Enforcement Kenya Revenue Authority & Another [2021] eKLR.** 5. **TAT 55 of 2018 Boleyn International Ltd v Commissioner of Domestic Taxes** 6. **TAT 101 of 2016 Bermac Limited v Commissioner Domestic Taxes** **Respondent’s Prayers** 1. The Respondent prayed as follows: 2. Uphold the Respondent’s review decision. 3. That this appeal be dismissed with costs to the Respondent as the same is devoid of any merit. **ISSUES FOR DETERMINATION** 1. Having examined the parties’ pleadings, the Tribunal identified the following issues for determination: #### *Whether the Respondent erred in rejecting the Transaction Value Method and applying Alternative Valuation.* #### *Whether the Respondent erred in applying the Alternative Valuation Method (Method 2 - Identical Goods)* **ANALYSIS AND FINDINGS** #### **Whether the Respondent erred in rejecting the Transaction Value Method and applying alternative valuation.** 1. The central question in this appeal is whether the Respondent was justified in rejecting the Appellant's declared transaction value and applying Method 2 (transaction value of identical goods) instead of the Transaction Value method (Method 1). 2. Section 122(1) of the EACCMA provides that: "Where imported goods are liable to import duty ad valorem, then the value of such goods shall be determined in accordance with the Fourth Schedule and import duty shall be paid on that value." 3. The Fourth Schedule to the EACCMA prescribes six methods of valuation to be applied sequentially: 4. **Method 1:** Transaction Value 5. **Method 2:** Transaction Value of Identical Goods 6. **Method 3:** Transaction Value of Similar Goods 7. **Method 4:** Deductive Value 8. **Method 5:** Computed Value 9. **Method 6:** Fall-back Value 10. Paragraph 2(1) of the Fourth Schedule provides that: "The customs value of imported goods shall be the transaction value, which is the price actually paid or payable for the goods when sold for export to the Partner State adjusted in accordance with the provisions of Paragraph 9." 11. The interpretative notes in Part II of the Fourth Schedule clarify that the methods are to be applied in sequential order. The primary and mandatory method of valuation is the transaction value. Alternative methods can only be applied where the conditions for the preceding method have not been fulfilled or where the transaction value is unreliable. 12. In the case of **Testimony Motors Limited v The Commissioner of Customs (Uganda Revenue Authority)** [2012] HC Civil Suit No. 212, the court held that: "Section 122 of the East African Community Customs Management Act, 2004 subsection 1 therefore is couched in mandatory terms. It provides that the value of such goods shall be determined in accordance with the Fourth Schedule and import duty shall be paid on the value. It does not give any discretionary power on the Commissioner to rely on alternative methods without following the procedures or directives laid out in the Fourth Schedule. The primary method ... is the method that must first be attempted. It is only upon failure of the primary method that alternative methods can be applied." 13. This principle was also affirmed in the case of **Commissioner of Customs & Border Control v Bidco Oil Refineries Limited** (Income Tax Appeal E011 of 2021), where the High Court reiterated that the customs value should be based on the price actually paid for the goods and that the adjustment of the customs value must be in conformity with the provisions of Section 122 and the Fourth Schedule to the EACCMA. 14. The Tribunal notes that the Appellant declared its imports using the primary method, which is the transaction value method. However, the Respondent rejected the Appellant's declared transaction value on the grounds that: (i) the invoices submitted lacked features of a genuine commercial invoice, such as Incoterms and payment terms; and (ii) the declared FOB values (USD 615 to 710 per MT) were lower than the average FOB values declared by importers of identical goods (USD 1000/MT for Uganda and USD 850/MT for Zambia). 15. The Appellant has a duty in law to prove that the Respondent erred in deviating from the transaction value declared by the Appellant. Section 223 of the EACCMA provides as follows: ***223. In any proceedings under this Act—*** *(a) the onus of proving the place of origin of any goods or the payment of the proper duties, or the lawful importation, landing, removal, conveyance, exportation, carriage coast- wise, or transfer, of any goods shall be on the person prosecuted or claiming anything seized under this Act.* 1. Further, Section 30 of the Tax Appeals Tribunal Act provides as follows: *In a proceeding before the Tribunal, the appellant has the burden of proving—* *(a) Where an appeal relates to an assessment, that* *the assessment is excessive; or* *(b) In any other case, that the tax decision should not have been made or should have been made differently.* 1. Whereas the burden of proof lies on the taxpayer, the burden is not static. It swings between the taxpayer and the Respondent at different points. If the taxpayer produces documents to counter the Respondent’s decision, the Respondent has the burden to demonstrate that its decision was correct. 2. In the case of **Commissioner of Domestic Taxes v Trical and Hard Limited [2022] KEHC 9927 (KLR)**, the Court emphasised that the burden of proof is not stationary. The Court observed as follows at paragraph 25 of the judgment: *I agree with the Tribunal’s holding that the burden of proof in tax matters is not stationary but is like a pendulum swinging between the taxpayer and taxman at different points but more times than not swings towards the taxpayer. The uniqueness of our tax system in placing the evidential burden of proof on the tax payer is neither a mistake nor is it unconstitutional.* 1. Further, in the case of **Commissioner of Domestic Taxes v Bosky Industries Limited (Income Tax Appeal E049 of 2022) [2025] KEHC 7965 (KLR),** the High Court held as follows at paragraphs 42, 46 and 46 of the judgment: *42. However, under general evidentiary principles, sections 107-109 of the Evidence Act, Cap 80, on the burden of proof, once a taxpayer has produced prima facie evidence supporting its position, the evidential burden can shift to the Commissioner to prove otherwise especially where fraud or other serious allegations are raised by the Commissioner.* *45. The “burden of proof” is not a static concept in tax litigation. Initially, the taxpayer must challenge an assessment by tendering evidence of legitimate transactions. Once the taxpayer has done so to a minimum level by demonstrating that the goods were paid for and ETR invoices exist, the burden shifts to the Commissioner to substantiate its allegations of fraud or fictitious transactions.* *46. In Hickman Motors Ltd vs Canada 1977 CanLII 357(SCC) it was stated that: -* *“The taxpayer’s initial onus of demolishing the Minister’s exact assumptions is met where the Appellant makes out a prima facie case. Where the Minister’s assumption is demolished by the Appellant, the onus shifts to the Minister to rebut the prima facie case made out by the Appellant and to prove the assumptions...The law is settled that unchallenged and uncontrolled evidence demolishes the Minister’s assumptions.”* 1. The Appellant raised two issues at the objection stage: (i) discrepancies in the basis for customs valuation and (ii) lack of consideration for market variation. To support its arguments, the Appellant provided the following documents: 2. Copies of the original proforma invoices as issued by suppliers. 3. Correspondence with the Appellant’s suppliers regarding the pricing and terms of the transactions. 4. Evidence of payment for the consignments, demonstrating the declared transaction values 5. Evidence of payment for the consignments, demonstrating the declared transaction values. 6. The Respondent, in its review decision dated 7th August 2025 did not dispute receipt of the aforementioned documents. However, the Respondent averred as follows: “in *your submissions, you have not been able to demonstrate that you used the transaction value. The transaction documents presented do not relate specifically to the goods paid as verified against the invoices attached.”* 7. The Tribunal has examined the sample invoices annexed to the Appellant's documents. A review of the invoices, particularly those from Zambia Sugar Plc and Mayuge Sugar Industries, reveals that the invoices include the following critical elements: 8. The supplier's name and contact details. 9. The Appellant's name and details. 10. A description of the goods (Brown Sugar). 11. Quantity (e.g., 1,000 MT, 600 bags of 50kg). 12. Unit price (e.g., USD 615 per MT FCA Mazabuka, USD 36.50 per bag). 13. Total amount (e.g., USD 615,000). 14. Payment terms (e.g., Telegraphic transfer to specified bank account). 15. Validity of the quote. 16. Delivery terms (e.g., FCA Mazabuka). 17. The Tribunal has already pointed out above that the Respondent claimed the invoices submitted lacked features of a genuine commercial invoice, such as Incoterms and payment terms. However, the Tribunal notes that the invoices on record bear the essential features of a conventional commercial invoice, including the price, quantity, description of goods, and payment terms. The alleged absence of "Incoterms" appears to be a misinterpretation, as the invoices clearly state the delivery terms (FCA - Free Carrier), which is a recognized Incoterm. The payment terms are also explicitly set out in the invoices. 18. The Tribunal observes that the Respondent's reliance on alleged irregularities in the invoices as a basis for rejecting the transaction value is, therefore, not supported by the evidence on record. While the Respondent claimed that the invoices availed had different fonts and that some items were italicised and bolded while others were not, the Respondent did not produce those invoices before this Tribunal. The Tribunal therefore is of the view that the invoices provided by the Appellant are sufficiently detailed and reliable in supporting the transaction value declared by the Appellant. 19. The Respondent argued that there were material variances between the amounts remitted and the declared invoice values, citing an example of a bank slip for USD 25,488 that did not relate to a specific entry. However, the Tribunal notes that the Respondent did not provide comprehensive evidence to demonstrate systemic inconsistencies across all transactions. The Appellant submitted bank slips and payment confirmations to support the declared transaction values. The Respondent failed to conduct a full analysis to show that the variances were material and justified the complete rejection of the transaction value method. 20. Section 122(4) of the EACCMA empowers the proper officer to "satisfy himself or herself as to the truth or accuracy of any statement, document or declaration presented for customs valuation purposes." This power must be exercised reasonably and not arbitrarily. The Respondent must demonstrate that the transaction value is unreliable based on cogent evidence, not merely on suspicion or general comparisons. 21. In the case of **Republic v Kenya Revenue Authority (ex parte J. Mohamed)** Civil Application 312 of 2011, the court stated: "A taxing authority is not entitled to pluck a figure from the air and impose it upon a taxpayer without some rational basis for arriving at that figure and not another figure. Such action would be arbitrary, capricious and in bad faith." 22. The Tribunal finds that the Respondent's rejection of the transaction value was not sufficiently justified based on the reliability of the documents availed during the Review stage. The Respondent failed to demonstrate with concrete evidence that the Appellant's declared transaction values were inaccurate or unreliable. The Respondent's reliance on the alleged irregularities in the invoices and the general comparison with other importers' consignments is insufficient to support the rejection of the primary method of valuation. 23. Accordingly, the Tribunal finds and holds that the Respondent erred in rejecting the Appellant’s declared transaction value method. The Respondent failed to discharge its evidentiary burden to demonstrate that the Appellant’s transaction value was unreliable, and the rejection was therefore unlawful and unsupported by cogent evidence. 24. Consequently, the Tribunal finds that the Respondent erred in rejecting the Transaction Value Method and in applying alternative valuation. #### **Whether the Respondent’s application of the alternative valuation method (Method 2 - Identical Goods) was supported by sufficient and verifiable evidence** 1. Having rejected the transaction value method (Method 1), the Respondent applied Method 2, which is the transaction value of identical goods. Paragraph 3 of the Fourth Schedule provides that: "Where the customs value cannot be determined under the provisions of paragraph 2, it shall be determined by proceeding sequentially through the succeeding paragraphs." 2. The Respondent relied on a comparative analysis that revealed that the Appellant's declared FOB values (USD 615 to 710 per MT) were lower than the average FOB values for identical goods from the same countries of origin (USD 1000/MT for Uganda and USD 850/MT for Zambia). 3. The Tribunal has carefully perused the Respondent’s documents in search of evidence supporting the alternative valuation. However, upon review, the Tribunal notes that the Respondent did not file any evidence demonstrating how it arrived at the transaction value of identical goods. What was on record was a schedule of computation of the underdeclared taxes attached to the Notice of Demand. Notably, the Respondent did not provide detailed comparative import data, price lists, or transactional evidence from the specific importers used for comparison. 4. The Tribunal further notes that the Respondent did not disclose the specific identities of the importers whose consignments were used as the basis for the alternative valuation. This omission is significant, as it deprived the Appellant and the Tribunal of the opportunity to verify whether the goods used for comparison were indeed "identical" within the meaning of the Fourth Schedule. 5. Under Paragraph 3 of the Fourth Schedule, the transaction value of identical goods is defined as the transaction value of goods which are: 1. Identical in all respects, including physical characteristics, quality, and reputation; 2. Produced in the same country as the goods being valued; and 3. Produced by the producer of the goods being valued, or where this is not possible, by a different producer. 6. The Respondent did not adduce any evidence to satisfy these criteria. There was no demonstration that the goods used for comparison were identical in physical characteristics, quality, or reputation. The Respondent's reliance on a general comparison of FOB values, without more, falls short of the requirements of the Fourth Schedule. 7. The Tribunal is alive to the provisions of Section 122(2) of the EACCMA, which provides as follows: "(2) Upon written request, the importer shall be entitled to an explanation in writing from the proper officer as to how the Customs value of the importer's goods was determined." 1. However, the Tribunal must consider whether the Respondent's failure to provide a detailed explanation of the valuation methodology in its Review Decision, despite having received and considered the Appellant's objection, is inconsistent with the broader duty to render a fair and reasoned administrative decision, more so where the Appellant raised the issue at the Objection stage. 2. In the case of **Joseph Muriithi Ndirangu t/a Ndirangu Hardware v Commissioner of Domestic Taxes** (2023) KEHC 19357 (KLR), the High Court affirmed that the Commissioner is obligated to issue a detailed and reasoned tax decision to ensure compliance with the inherent right of taxpayers to enjoy the right to fair administrative action that is expeditious, efficient, lawful, reasonable, and procedurally fair. 3. Similarly, in **Local Productions Kenya Limited v Commissioner of Domestic Taxes** (**Tax Appeal Tribunal, Tax Appeal No. 50 of 2017**), the Tribunal held that the Commissioner must provide a detailed and reasoned decision that addresses the specific issues and evidence raised by the taxpayer. 4. In the instant case, the Respondent's Review Decision is brief and does not engage with the specific evidence provided by the Appellant. The Respondent merely stated that the Appellant had "not been able to demonstrate that you used the transaction value" and that the "transaction documents presented do not relate specifically to the goods paid." The Respondent did not explain how the alternative FOB values (USD 1000/MT and USD 850/MT) were derived, nor did it address the Appellant's arguments regarding market variations and the commercial reality of the transactions. 5. The Tribunal finds that the Respondent's reliance on Method 2 is not adequately supported by the evidence. The Respondent did not disclose the specific identities of the "identical goods" or the importers used for comparison. There was no demonstration that the goods were indeed identical in terms of quality, quantity, and commercial level. The Respondent also failed to account for market variations, supplier agreements, and other factors that could explain price differences, as contended by the Appellant. 6. Consequently, the Tribunal finds and holds that the Respondent erred in application of the alternative valuation method (Method 2 - Identical Goods) **DETERMINATION** 1. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is meritorious and makes the following orders: - 1. The appeal be and is hereby allowed; 2. The Review Decision dated 7th August 2025 be and is hereby set aside; 3. Each party to bear its own cost. 2. It is so ordered. **DATED and DELIVERED** at **NAIROBI** this………**10th** ……...day of…..…**July**…….…2026 **……………………………..….** **DR RODNEY ODHIAMBO OLUOCH** **CHAIRPERSON** **……………………………… ……..….……..……………..** **CYNTHIA MAYAKA DR. ERICK KOMOLO MEMBER MEMBER** **……………………………..….** **ABDULLAHI DIRIYE** **MEMBER**